Spot gold was up 1.3% at $4,156.52 an ounce, having slipped to a one-week low in the last session. U.S. gold futures for December delivery rose 1.7% to $4,177.80 per ounce.
The dollar slipped 0.5%, while the benchmark 10-year Treasury yield were at a three-week low.
“I think the market was largely anticipating the hot PPI print in the wake of yesterday’s higher than expected CPI number,” said Peter Grant, vice president and senior metals strategist at Zaner Metals.
“The market is starting to realize that the Fed is hamstrung to some degree because of the fiscal situation and that raising interest rates much higher is going to be quite a burden to the economy.”
Higher interest rates make the non-yielding asset less attractive.
U.S. producer prices increased by the most in 4-1/2 years in September amid rising costs for goods and services, the latest indication of inflation broadening out beyond energy products.
The data followed Wednesday’s consumer price report, which showed prices accelerated in September on a surge in gasoline costs. Market pricing for an October Fed rate hike rose sharply after the CPI data.
However, San Francisco Fed President Mary Daly and Vice Chair for Supervision Michelle Bowman underscored that an immediate rate hike might not be required, tempering expectations of an October rate hike.
Traders are now pricing in about a 30% chance of a rate hike later this month, according to CME’s FedWatch tool.
Investors are also looking out for Fed Chair Kevin Warsh’s comments at the International Monetary Fund’s annual meeting at 11:30 p.m. ET for any clues ahead of this month’s Fed meeting.
Among other metals, spot silver gained 2.1% to $56.78 an ounce, platinum rose 0.6% to $1,616.54 an ounce and palladium climbed 3.4% to $1,131.25 an ounce.